Many analysts and financial planners highly recommend a systematic investment plan (SIP). Additionally, they argue that it is the ‘safest’ route to establish long term wealth.
In spite of everything, the systematic plan does not come as flawless as they point out. Behind every perfection, there must be a loophole that potentially negates its supposed-to-be faultlessness.
Prior to discussing the problem(s) with SIP, let’s concisely overview what systematic investment plan actually is (and, subsequently, how it works).
Also Read: What No-Brainer Investment Means
Systematic Investment Plan: The What and How
As the name suggests, a systematic investment plan (SIP) is a method of investing a fixed amount of money in mutual funds at a fixed interval of time. Normally, it is either weekly, monthly or annually.
In contrast to lump sums investment, a systematic investment plan chiefly requires a small amount of money. Accordingly, the key to this investment does not lie in the quantity of a single investment. Instead, it emphasizes consistency.
That way, the plan will not disturb the investor’s financial life, thanks to its small fixed amount and date. Moreover, the plan permits an investor to transform investing as a habit, endorsing sustainability.
Systematic, but Not Entirely Secure
To begin with, it is correct that the plan permits investors to discard their emotional factors and biased speculations by making investing a systematic process.
While it is true that SIP bears greatness, but its inflexibility becomes its own downfall. For that reason, SIP cannot work in all market conditions, thus making it your only ‘vehicle’ would not secure your long-term financial freedom.
For instance, in conditions such as bear markets, sideways markets, or sudden upward-to-downward movement in a market, the investment will be ineffective. In these conditions, it is always wise to consult with other alternatives.
